Overdraft Issues Are On The Rise Again
Overdraft (OD) issues seem to be on an uptick again. Many bankers have told me recently that the regulators are still focusing on consumer harm with overdraft programs. So what issues are they finding? Well much of it has to do with the way the program is disclosed vs. the way it’s actually charging customers.
Red Flag: Only using the word “days” within disclosures. This is an area where you want to be specific. Let’s say you have a continuous OD charge of $5/day after 3 days being overdrawn. Now let’s say the OD happens on Thursday. Three days later is Sunday. Systems aren’t set up to charge on Sundays because it’s not a business day, so often times it defaults the charge to the previous business day (Friday). In which case they were charged a continuous OD fee after one day being overdrawn. That is also an issue because the customer has no chance to bring the account current on Sunday. Use specific terms, and business day is cleaner than calendar day because of the scenario above.
Red Flag: Pyramiding of fees. I’ve seen service charges or dormant account fees trigger OD fees. When one fee triggers another fee, you have a pyramiding of fees issue on your hands. Search periodic statements to find these instances and verify OD fees are not charged in these cases.
Red Flag: Limiting daily OD fees. It’s not required, but the FDIC strongly promotes this practice. Regardless of who thinks you should limit these fees in a single day, make sure your actually limiting fees if you say you are. Find your habitual OD offenders, review their periodic statements, and confirm that are only getting 4 fees a day (or whatever your limit is).
Simple solution: Thoroughly review your disclosures and ensure that what you’re saying is what you’re doing. Pull periodic statements for all possible scenarios to see what’s actually happening. Don’t assume your system is set up correctly. Trust, but verify. If you find issues that contradict your disclosures and harmed consumers, you should consider restitution. You want to self-identify any problems because the regulators are still hot on this issue.